HARRISBURG – The Supreme Court of Pennsylvania has upheld a lower court ruling and approved a calculation formula which resulted in a $2.8 million punitive damages award, in a case where compensatory damages only totaled $250,000.
In a majority opinion handed down Wednesday, the state’s high court deemed as constitutional the punitive damages award and calculation method reached in The Bert Co. v. Turk Et.Al, and affirmed the Superior Court of Pennsylvania’s prior opinion rejecting an appeal labeling the amount of punitive damages as “excessive” and criticizing the method by which it was arrived at.
The key question that the Supreme Court of Pennsylvania considered in this case was how to calculate the ratio between punitive and compensatory damages in an action where there are multiple defendants: Per defendant or per judgment?
Pennsylvania’s high court issued its answer.
“We adopt the per-defendant approach to calculate the ratio, where the punitive damages award is the numerator and the compensatory damages award is the denominator. This methodology reflects the impact of the punitive verdict on each of the defendants as required under the Due Process Clause,” Supreme Court of Pennsylvania Justice Christine Donohue said.
Defendant Matthew Turk was an employee of plaintiff The Bert Company (which did business as “Northwest Insurance”) from 2005 until 2017, when he and four of his colleagues left the company, to join NWI’s competitor and his co-defendant First National Family (made up of First National Insurance Agency LLC, First National Bank and FNB Corporation).
Turk and his colleagues joined First National Family through a “lift out,” where a group of individuals from the same employer are hired on a brief timetable.
NWI filed suit against Turk, his fellow four departing colleagues and First National Family in the Warren County Court of Common Pleas. Despite the claims against the other four former employees being dismissed, NWI won a compensatory damages verdict in June 2019, of $250,000 against both Turk and First National Family, for claims of both breach of contract and tort.
In addition to compensatory damages, NWI was awarded $2.8 million in punitive damages, an amount more than 11 times larger than the compensatory damages award.
The punitive damages award was portioned as follows, with Turk being responsible for $300,000 (and $361,093.74 for NWI’s attorney fees), First National Insurance Agency, LLC being responsible for $1.5 million, First National Bank being responsible for $500,000 and FNB Corporation being responsible for $500,000.
Turk and the First National Family then challenged the constitutionality of the punitive damages award in an appeal to the Superior Court of Pennsylvania, arguing that its size violated the Fourteenth Amendment to the U.S. Constitution’s Due Process Clause.
However, the Superior Court affirmed the punitive damages award and calculated a ratio of compensatory to punitive damages for each defendant on a per-defendant basis. When viewed under this calculus, each defendant’s punitive damages fell within a single-digit ratio.
Furthermore, the Superior Court concluded the punitive damages award was reasonable when the “potential harm” Turk and the First National Family could have caused to NWI was factored in.
According to the Superior Court, “Given the total disregard for the rule of law that these four tortfeasors displayed, the punitive damages that the jury awarded are light-years away from the outer limits of the Due Process Clause.”
A second appeal was then brought to the state Supreme Court, which found that the Superior Court’s per-defendant ratio for calculation of punitive damages was correct.
“The Superior Court calculated the punitive to compensatory damages ratio using a per-defendant approach, as calculated by the trial court, which resulted in ratios ranging from 1.81-to-1 to 6-to-1, rather than a per-judgment approach, which resulted in a ratio of 11.2-to-1…we generally endorse the per-defendant approach as consistent with federal constitutional principles that require consideration of a defendant’s due process rights,” Donohue said.
“Further, we conclude that under the facts and circumstances of this case, it was appropriate to consider the potential harm that was likely to occur from the concerted conduct of the defendants in determining whether the measure of punishment was both reasonable and proportionate. Thus, we affirm the order of the Superior Court.”
Further concurring opinions were authored by Justices Kevin M. Dougherty, David N. Wecht, Sallie Updyke Mundy and P. Kevin Brobson.
Dougherty explained that the wealth of a defendant should be considered when deciding if a punitive damages award was “excessive.”
“If a wealthy defendant can absorb a punitive damages award without suffering financial discomfort, the deterrent purpose of the award is undermined. After all, how can punitive damages possibly deter future wrongdoing if a massive award represents a mere fraction of the defendant’s actual worth,” Dougherty said.
“A company which generates millions of dollars every year can comfortably pay hundreds of thousands of dollars assessed against it – even if the same figure would be unreasonably high when levied against the average person. Because such damages are intended to inflict financial ‘pain’ as punishment, and thus deter similar future conduct, the wealthier the defendant, the larger the monetary loss required to have that deterrent effect.”
Wecht opined that the amount of a punitive damages award was not within the purview of the Due Process Clause.
“In my view, the size of a punitive damages award, by itself, is simply not a concern of the federal Due Process Clause. If the Supreme Court believes that protection from some specific threshold of punitive damages is an unenumerated right guaranteed by the United States Constitution, then it should abandon...erroneous precedent... Otherwise, it should leave state courts and legislatures to go about their business. That is the essence of federalism,” Wecht said.
Mundy said while the per-defendant approach to punitive damages calculation worked for the case in question, she felt it appropriate to leave the question surrounding other approaches open.
“Unlike compensatory damages, the jury does not make a finding of the amount of potential harm caused by the defendants’ tortious conduct let alone allocate that potential harm amongst the several defendants. In such circumstances, employing the per-judgment approach and using the combined total of the compensatory damages and potential harm as the denominator and the total amount of punitive damages awarded by the jury as the numerator may be more appropriate because it would give fuller consideration to the reprehensibility of the defendants’ conduct. It would also be impossible for the court to accurately appropriate the amount of potential harm attributable to each individual defendant without a specific finding by the jury, making it practically impossible to employ the per-defendant approach when considering potential harm,” Mundy contributed.
Brobson arrived at a similar conclusion in his own concurring opinion.
“Justice Mundy notes in a concurring opinion that there may be circumstances not presently before the Court where the per-judgment approach is more appropriate than the per-defendant approach applied here. Justice Mundy notably highlights that the United States Supreme Court has ‘continuously refused to create mechanical rules in considering the constitutionality of the punitive-to-compensatory damages ratio.’ I agree. Given the complexity of this area of the law, I would likewise leave open the possibility that the per-judgment approach or some hybrid method could serve as the best means under different circumstances for assessing the constitutionality of a punitive award,” Brobson stated.
Supreme Court of Pennsylvania cases 13 WAP 2022 & 14 WAP 2022
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com